Monday, March 1, 2010

How sweet it is!

Thanks to loyal reader, Ed Naratil, for forwarding the following Robert Swift article.


Mellow's state pension could be triple his salary


Published: February 28, 2010

HARRISBURG - Sen. Robert Mellow could be eligible for an annual taxpayer-funded state pension amounting to nearly three times his $110,250 salary when he leaves office in November.

Mr. Mellow, 67, is eligible to collect the bulk of his pension through the state government's defined-benefit plan. In addition, Mr. Mellow can collect supplemental pension benefits to reach a minimum $313,000 annual payout he may be getting through the little-known state-run Benefits Completion Plan.

The combination of two pension streams will enable Mr. Mellow to have retirement benefits that greatly exceed his current $110,250 Senate salary as well as the incomes of average Pennsylvanians. In addition to generous pensions, state lawmakers enjoy top-level health benefits that cover medical care, eye and dental care and prescription drugs in retirement. Since 2006, current and retired senators contribute 1 percent of their incomes toward health benefits.

Mr. Mellow, D-22, Peckville, has said he won't seek re-election to an 11th term, wrapping up a career that began in 1970. Efforts to obtain comment from Mr. Mellow and his spokeswoman, Lisa Scullin, were unsuccessful.

The exact amount of Mr. Mellow's pension won't be known until early next year, and will be influenced by a variety of factors.

Chief among them, whatever decision Mr. Mellow makes about collecting a lump-sum payment could reduce both the regular pension and the supplemental benefits through the Benefits Completion Plan by as much as a quarter or a third, said Rick Dreyfuss, a Hershey actuary who writes about pension issues for the Harrisburg-based Commonwealth Foundation.

Pension rules allow retirees to withdraw any or all of the portion withheld from their own paychecks over the years, along with 4 percent interest, in a lump sum. Most find it financially advantageous to do so. The lump sum can reach six figures, and taking it reduces the annual pension amount paid in monthly installments.

Mr. Mellow is one of only three sitting lawmakers who are in a special class when it comes to pension benefits, according to documents from the State Employees Retirement System. He is covered by an extra-lucrative pension system in effect prior to 1974.

This system uses a 7.5 percent "multiplier" to calculate benefits for the pre-1974 class. Lawmakers elected since that year have a 3 percent multiplier. Some corporate pension plans use a 1.5 percent multiplier, according to analysts, but even those plans are disappearing in the private sector, where 401(k) plans built on a mix of contributions from employers and employees are most common.

The retirement system early next year will calculate Mr. Mellow's pension based on his 40 years in office, the 7.5 percent multiplier of the average salary of the three highest years and other factors such as any lump sum withdrawal, provisions for surviving spouses and credit for any military service or work as a state employee in another capacity.

The retirement system provided information that shows the average of the three highest salary years for Mr. Mellow is $113,000, reflecting his role as Senate minority leader. Using the multiplier, a rough estimate indicates the minimum annual pension for Mr. Mellow at $313,000, or 300 percent of that average.

However, the Internal Revenue Service has set a cap of $195,000 for a retiree collecting from a defined-benefit pension in 2009 and 2010. This gap can fluctuate annually based on inflation.

Therefore, pension benefits for Mr. Mellow above that cap would be paid through the Benefits Completion Plan, a mechanism authorized by Congress in the 1990s.

One section of the IRS rules caps the annual amount going to beneficiaries of defined-benefit pensions, while a separate section creates a way for those beneficiaries to obtain any benefits that exceed the cap, said retirement system spokesman Robert Gentzel. This complexity is one reason why it's difficult to offer estimates of the amount of Mr. Mellow's pension, he added.

A 2002 state law authorized the retirement system to create its own benefits plan in line with IRS rules. Act 234 dealt with several pension changes, including the Benefits Completion Plan.

Beneficiaries contribute a portion of their paycheck to receive this supplemental pension benefit under the state law.

The legislation that led to Act 234 was introduced by then-Sen. James Gerlach, a Chester County Republican, was approved by a unanimous vote in the Senate and overwhelming vote in the House and signed by Gov. Mark Schweiker.

Mr. Mellow's pension will be in the news when policymakers are focused on a looming pension fund crisis that will hit taxpayers hard - a projected $4 billion spike in pension costs for both the State Employees Retirement System and the Public School Employees Retirement System in 2012-13, due to the impact of baby boomers retiring, pension increases enacted in 2001 and large investment losses in the 2008 stock market downturn.

"Here we are now looking at a $3 billion to $5 billion crevasse," said John Kennedy, a former House lawmaker from the Harrisburg area running for the Republican nomination for lieutenant governor. A businessman, Mr. Kennedy refused pension benefits when he left the House two decades ago. He is calling for pension reform and forming an organization to support legislative candidates who sign a pledge to refuse pensions.

Estimating minimum annual pensions for three other veteran lawmakers from Northeast Pennsylvania who aren't seeking re-election is relatively more straightforward. They are Sen. Raphael Musto, D-14, Pittston; House Speaker Keith McCall, D-22, Summit Hill; and Rep. Robert Belfanti, D-107, Mount Carmel.

Mr. McCall's and Mr. Belfanti's pensions will be calculated based on years in office, the average salary of the three highest years and the 3 percent multiplier. Mr. Belfanti can claim credit for military service during the Vietnam War and Mr. Musto for military service in the Korean War. All three can take the lump-sum payment or make provisions for surviving spouses, thus reducing their annual pension amount.

Mr. Musto, 81, missed being a member of the pre-1974 lawmaker pension class because of a break in his years in the General Assembly. He was elected to the state House in 1971, served a short stint in Congress during 1980 following a special election, and was elected to the state Senate in 1982.

That means Mr. Musto's nine years in the state House are based on the 7.5 percent multiplier and 28 years in the Senate are based on the 3 percent multiplier. Mr. Musto could be eligible for an estimated $70,000 minimum annual pension based on a $77,000 average salary.

Mr. Musto said he has not made any decisions yet about a lump sum or other factors.

"I have not given it any consideration at all," he added. "It's kind of early. I'm not retiring until Dec. 1." Mr. Musto said he hoped the public would reflect on his decades in the legislature when looking at his pension.

Mr. McCall, 50, could be eligible for a $100,000 minimum annual pension based on a $108,000 average salary and 32 years in the House. Mr. McCall collected salary in recent years above a lawmaker's base pay as speaker and House majority whip.

Mr. Belfanti, 62, could be eligible for a $76,000 minimum annual pension based on a $76,000 average salary. He was elected to the House in 1980.

Mr. Belfanti said it's incorrect to characterize lawmakers' pensions as "taxpayer-funded" since they contribute a percentage of their paycheck to support the benefit.

"We pay 6.25 percent of our salary into a pension which is matched," he added.

Current and retiring lawmakers make up a very small percentage of the roughly 200,000 current and retired state employees covered by the retirement system, Mr. Belfanti said. He said lawmakers' pensions draw more public scrutiny than those of elected judges which have a 4 percent multiplier.

These estimated sums are far more than what the average working Pennsylvanian makes in annual salary.

By comparison, Pennsylvania's per-capita income averaged $34,937 in 2006, according to the Pennsylvania State Data Center. The median income for Pennsylvania households was $46,259 in 2006.

A Harrisburg reformer doesn't think lawmakers are entitled to taxpayer-funded pensions under the state Constitution.

"We believe that legislative participation in the State Employees Retirement System is unconstitutional," said Tim Potts, founder of Democracy Rising.

He referred to Article II, Section 8 that "The members of the General Assembly shall receive such salary and mileage for regular and special sessions as shall by fixed by law, and no other compensation whatsoever."

Any pension system for lawmakers should be based on 401(k) plans or other types of deferred payments, Mr. Potts said.


Anonymous said...

This is really disgusting, when you consider the rest of their "perks" that they receive!

Anonymous said...

kinda show's you how little paid School Board Members and Borough Council people are.

Anyone know if Councilman Ken Buckwalter, will accept a Pension and FREE Healthcare Benefits like this?

I've heard and have in writing from Jonathan Jenins who is running for state Rep.

That he will NOT accept a Pension or healthcare Benefits, and states that the PA Constitution specifically states that State Legislators are ONLY entitled to Salary,,,and nothing more.

Is it possible that our Elected Leaders IGNORE the PA State Constitution?

Anyone surprised?

Yours in the Ideals of our Representative Democracy,

Chris DeVol
East Vincent Township

Anonymous said...

They're just about all thieves. Time for a new thread?

Anonymous said...

Not for nothing but why are you hating on a guy who was elected and served PA for over 30 years getting 100K pension? Is it jealously or ignorance? Reminds me of the daily rants bashing teachers and other government workers who receive pensions.

Let me ask you people something. If YOU were promised a pension, would you give it back? Instead of whinning about what others have earned, why not instead fight to better YOURSELF! Just because many private sector workers lost their pensions in 401 K scams doesn't mean everyone else should have to give their's up. If you people think it's such a good deal, run for office, get re-elected for 30 years and get it for yourself. Oh yeah, you can't even win a local Phoenixville election so I guess that is out.

Weneedachange said...

Pensions are one thing,healthcare another.

If the government wants to change or run healthcare they should start a pilot program and use themselves as the guini pig.

It amazes me how this government wants to run everyrthing and use the people as the experiment.

Start from the top and if it doesn't fly than the only people hurt are the legislators.

Anonymous said...

I don't think the taxpayer can continue to finance healthcare AND pensions for gov't employees or unions or whoever.

The car, steel and other unions are all dying. The teachers union is next.

There's a shrinking pool of employees to support a growing number of retirees. The math just doesn't add up any more.

Folks just can't take much more paying taxes or you lose your house.

The car and steel unions actually gave back when faced with losing their jobs. Will the teachers????

A Phoenixville Taxpayer said...

Let's reform the State Legislature.

How to do it? Read THISthis pdf file.